MicroStrategy’s Premium Justified? Adam Back Weighs In

For many investors in the crypto space, understanding the value and strategy behind companies holding significant amounts of Bitcoin is crucial. One such company that constantly captures attention is MicroStrategy, led by its vocal proponent, Michael Saylor. The firm’s unique approach, often involving leveraging financial instruments to acquire more BTC, has led to its stock trading at a premium compared to its underlying net asset value. But is this premium justified?

Why Adam Back Thinks MicroStrategy’s Premium is Reasonable

Blockstream CEO Adam Back recently shared his perspective on the premium associated with MicroStrategy’s stock (MSTR). Speaking at BTC Prague, Back argued that the premium isn’t out of line when you consider the company’s historical performance in accumulating Bitcoin per share. He noted that it has typically taken MicroStrategy around 16 to 18 months to double its Bitcoin holdings on a per-share basis.

Back explained that if this rate of accumulation continues, investors holding MSTR stock would effectively reach a point equivalent to the underlying net asset value (mNAV) in about a year and a half. From this perspective, he stated, the premium allows investors to be ‘derisked’ over time as the hard currency base (Bitcoin) per share grows. This historical track record, according to Back, provides a rationale for the current premium.

Understanding the MSTR Premium and Strategy

The premium on MSTR stock means the company’s market capitalization is higher than the total value of its assets, primarily its substantial Bitcoin holdings, minus its liabilities. This premium fluctuates but has recently been around 1.7x based on basic shares, or 1.9x on a diluted basis, according to MSTR Tracker data.

MicroStrategy’s strategy under Michael Saylor involves using financial leverage to boost its Bitcoin treasury. This includes methods like at-the-market (ATM) equity offerings, where they sell stock to raise capital for Bitcoin purchases, and issuing convertible senior notes. This aggressive approach has allowed the company to amass a significant amount of Bitcoin. At the time of the original report, Saylor Tracker data indicated MicroStrategy held 592,100 Bitcoin, valued at approximately $60.89 billion.

Evaluating Premium and Risk, According to Adam Back

When considering investments in companies with large Bitcoin treasuries, Adam Back advises investors to evaluate if the premium is ‘reasonable’. He suggests thinking about the premium in terms of how long it might take for the growth in the underlying asset (Bitcoin per share) to effectively ‘overcome’ the initial premium paid on the stock.

Back also touched upon the risk associated with fluctuating mNAV. While high mNAVs can sometimes appear speculative, he noted that treasury companies with elevated mNAVs can also exhibit high ‘yield’ in terms of asset accumulation. However, significant drops in mNAV can indeed be a ‘nervous experience’ for investors.

Comparing MicroStrategy and Metaplanet

The article briefly mentions Metaplanet, another company adopting a Bitcoin treasury strategy. While Metaplanet’s mNAV has experienced more volatility compared to MicroStrategy, Back noted that it has shown a tendency to recover after dips. Metaplanet recently surpassed Coinbase in Bitcoin holdings, reaching 10,000 BTC.

Current Performance of MSTR Stock

Despite the long-term accumulation strategy and Adam Back’s comments on the premium’s reasonableness, MSTR stock has seen recent price movement. As of the original report, the stock closed at $369.70, showing a decrease of 7.45% over the prior month, according to Google Finance data. Stock performance is influenced by many factors beyond just the underlying Bitcoin value and accumulation rate.

Summary: Is the Premium Justified?

Ultimately, whether MicroStrategy’s premium is ‘justified’ is a decision for each investor. Adam Back’s perspective provides a framework: considering the historical rate at which the company has increased its Bitcoin per share offers a way to view the premium not as a fixed overvaluation, but potentially as paying in advance for future asset accumulation. While the strategy involves leverage and the stock price can be volatile, the core argument rests on the continued success of Michael Saylor’s aggressive Bitcoin acquisition plan.